The 60 day payment cap is not a cash flow plan
The Government's late payment reforms should help smaller suppliers, but they will not remove the cash gap. Even if a large customer pays within 60 days, an SME may still need to fund wages, stock, suppliers, VAT and delivery costs long before the money arrives.
Getting paid sooner is not just a legal issue. It is a funding and cash flow issue.
Quick summary
- The Government has proposed a clearer 60 day cap on payment terms for large firms paying smaller suppliers.
- Mandatory interest on late payments is also part of the reform package.
- Better payment culture should help SMEs, but 60 days is still a long time to wait.
- Suppliers may need invoice finance or supplier finance to get paid sooner.
- Buyers may use working capital funding, extended terms or business payment products to pay later.
- Funding can support growth, but only if the cost and risk are understood.
- Strong records and clear customer evidence make funding easier.
The business problem
Late payment gets attention because it is frustrating and unfair. But the bigger problem is cash timing.
A business may do the work properly, issue the invoice on time and still wait weeks or months to be paid. During that time, it may have already paid staff, bought stock, paid subcontractors, covered fuel, paid rent and dealt with VAT.
A 60 day payment term may be better than 90 or 120 days. It is still 60 days.
For many SMEs, that delay is the difference between trading confidently and constantly firefighting.
What is changing?
The Government has announced reforms to tackle poor payment practices. The proposals include a clear 60 day cap on payment terms for large firms paying smaller suppliers, mandatory interest on late payments and stronger action against poor payment behaviour.
That is a positive development. Payment culture matters. Large customers should not use smaller suppliers as a free source of working capital.
But business owners should be realistic. Regulation can improve behaviour, but it does not always change cash timing quickly. Disputes still happen. Approval processes still slow invoices down. Customers may still query work, delay sign off or use complex supplier portals.
The practical question for SMEs is this: what happens to cash while the business is waiting to be paid?
Funding to get paid sooner
If a business wants to get paid sooner, invoice finance can be a sensible option.
Invoice finance allows a business to access money against unpaid invoices. Instead of waiting for the customer to pay, the business receives an advance from a funder. When the customer pays, the facility is repaid.
This can help with:
- Wages.
- Supplier payments.
- Stock purchases.
- VAT timing.
- Growth orders.
- Seasonal peaks.
- Larger customer contracts.
Invoice finance is not just distress funding. For growing SMEs, it can be a commercial tool that links funding to sales.
The more the business invoices, the more funding may be available, subject to customer quality, paperwork, limits and lender appetite.
Funding to pay later
There is another side to the same problem.
Some businesses are not trying to get paid sooner. They are trying to pay suppliers later without damaging relationships.
That might involve:
- Working capital funding.
- Trade finance.
- Supplier payment facilities.
- Extended terms products.
- Business payment cards.
- Short term business funding.
Used carefully, this can help a business buy stock, accept new orders or manage a temporary cash squeeze.
Used badly, it simply moves the problem forward and adds cost.
Paying later only works if the business has a clear repayment route. If the product is used to cover weak margins or poor trading, the pressure usually comes back harder.
How the product choice differs
The right option depends on where the cash gap sits. Funding should match the cash cycle. If it does not, it can create more pressure than it solves.
| Where the cash gap sits | Products that usually fit |
|---|---|
| You have done the work but customers pay slowly | Invoice finance to release cash against unpaid invoices |
| You need to pay suppliers later without straining relationships | Working capital, supplier finance or extended terms products |
| You need to buy stock or materials before you can sell | Trade finance or stock funding |
When funding works well
Funding works well when it helps a business do something commercially sensible.
Examples:
- A wholesaler uses invoice finance to fund stock for confirmed orders.
- A recruitment business uses invoice finance to cover payroll before clients pay.
- A manufacturer uses trade finance to buy materials for a profitable contract.
- A services business uses short term funding to bridge a VAT timing issue.
- A growing supplier uses funding to accept work from a large customer on 60 day terms.
In each case, funding supports trading. It does not replace trading.
Where it can go wrong
Late payment funding can go wrong when the business treats it as permanent cash.
Common problems include:
- Funding invoices that are likely to be disputed.
- Borrowing against weak customers.
- Ignoring dilution, credit notes and offsets.
- Using expensive short term funding for a long term loss.
- Paying suppliers later but failing to improve customer collections.
- Signing a personal guarantee without understanding the risk.
- Assuming every invoice will be fully fundable.
- Forgetting that a lender can reduce availability if risk increases.
If trading deteriorates, funding can tighten quickly. A lender may reduce advance rates, exclude customers, demand more information or treat breaches as defaults.
Costs, risks and watch-outs
The cost of funding is not just the rate.
Business owners should check:
- Arrangement fees.
- Monthly service fees.
- Minimum fees.
- Discount charges or interest.
- Transaction charges.
- Audit or survey fees.
- Legal costs.
- Exit fees.
- Bad debt risk.
- Customer concentration limits.
- Recourse if the customer does not pay.
- Security and personal guarantees.
Some products are flexible but more expensive. Some are cheaper but restrictive. Some are easy to enter and expensive to leave.
Good funding should give the business more control, not less.
Questions to ask before signing
- What is the total cost, including all fees?
- Is there a minimum monthly fee?
- Can the lender reduce availability?
- What security is required?
- Is a personal guarantee required?
- What happens if trading gets worse?
- What information must be provided each month?
- Are there exit or termination fees?
- What happens if a customer does not pay?
- What could put the facility into default?
- Is this suitable for growth, survival or both?
What lenders will check and why
A lender will want to understand the business, the customers, the invoices and the repayment route. If you want the reasoning behind each request, see why lenders ask the questions they ask.
That usually means checking:
- Bank statements.
- Management accounts.
- Filed accounts.
- Aged debtor reports.
- Aged creditor reports.
- Invoice evidence.
- Customer contracts.
- Proof of delivery.
- Credit notes and disputes.
- HMRC position.
- Existing security.
- Companies House records.
- Forecast cash flow.
This is not box ticking. It is how the funder checks whether the request is real, affordable, evidenced and repayable.
Most SMEs are honest. But a small number of bad actors manipulate applications, inflate values, hide liabilities or create false comfort for lenders. That makes funders more cautious and increases due diligence for everyone else.
The best answer is transparency. Clean records, clear invoices and honest explanations make funding easier.
Final practical summary
Late payment reform matters. But a 60 day payment cap is not the same as cash in the bank.
SMEs should still understand their cash cycle, know when money leaves, know when money arrives and consider whether funding could sensibly bridge the gap.
If the business wants to get paid sooner, invoice finance may help.
If the business wants to pay later, working capital or supplier payment funding may help.
Neither is automatically good or bad. The right question is whether the funding solves a real commercial problem at a cost and risk the business can afford.
Funding is a tool, not a failure. The wrong funding, used for the wrong reason, is where the risk sits.
FAQ
Will the 60 day payment cap solve late payment for SMEs?
It should help, but it will not remove the cash gap. Even 60 day terms mean a business may have to fund wages, suppliers, VAT and delivery costs before customer money arrives.
How can an SME get paid sooner?
Invoice finance can help some businesses access cash against unpaid invoices. It works best where invoices are valid, customers are creditworthy and delivery evidence is clear.
How can a business pay suppliers later without damaging relationships?
Some businesses use working capital funding, trade finance or supplier payment products. These can help, but only where there is a clear repayment route and the business understands the cost.
Is invoice finance suitable for every business?
No. It is usually more suitable for businesses that sell to other businesses on credit terms. It may be a poor fit where invoices are disputed, customers are weak or records are poor.
Sources and further reading
- GOV.UK — Late payment reforms and the Commercial Payments Bill
- Small Business Commissioner — Late payment powers
- FSB — Late payment resources
- British Business Bank — Small Business Finance Markets Report 2026
This article reflects current Juno Funding editorial. Funding products, rates and lender appetite change frequently — figures are indicative only and should not be treated as advice.